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Fifth Circuit Denies Deferential Review for Fiduciary Actions

Posted in Benefits

Many employee benefit professionals are aware of the deferential standard of review provided to plan fiduciaries in accordance with the 1989 United States Supreme Court ruling in Firestone Tire & Rubber Co. v. Bruch.  That is, a court will not question the decisions of a fiduciary of an ERISA plan to whom discretionary authority to interpret the plan’s terms has been delegated, unless there is evidence of an abuse of discretion by the plan fiduciary.  Hence, where a plan confers on plan fiduciaries such discretionary authority, the court will not review the underlying facts of the claim unless the claimant submits sufficient evidence to support a finding that the fiduciary abused his or her discretion.

Questions remain, however, on the scope of the Firestone standard.  Is the standard limited to benefit denials under an ERISA plan? Does it extend to a fiduciary’s actions in accordance with the plan’s terms?  In Futral v. Chastant, the Fifth Circuit joined the Second Circuit in concluding that that Firestone standard does not apply to breach of fiduciary duty claims.  On the contrary, the Third, Sixth, Seventh, Eighth and Ninth Circuits have concluded that deferential review should be applied to both benefit denial and breach of fiduciary duty claims.  Interestingly, this issue was raised in the Tibble v. Edison Int’l case that is currently in front of the United States Supreme Court and could be settled in the next couple months.  Limiting the Firestone standard to benefit denial claims could result in increased liability to fiduciaries, as well as increased litigation costs for plan sponsors.